Media Properties?
Project Properties?
Preview Properties?
Timeline effects, crop, pan/zoom, etc,. etc., etc.,?
Number of video and audio tracks on the timeline?

Sorry for the late response, been busy with work.

CPU and RAM usage never exceeds 30%, all other programs run perfectly fine when movie studio is frozen.

The movie files are avi format 1280 x 720
project properties are the same resolution, progressive scan, rendering quality is best, deinterlace is set to blend feilds, frame rate 30, aspect ratio 1.0.
preview is set to quarter, dynamic RAM set to 12000, rendering threads set to 16.

at the moment there are no video edits in any of the stuff I am trying to edit, 1 video track with footage in it and 2 audio tracks.

"

OK? Now we know the dimensions.
Use MediaInfo to give the full media properties!
Also we need the full preview properties.
Including:
-- Simulate device aspect?
-- Scale to fit preview?
-- Change source to match output? (or whatever it's called)

This is important or I wouldn't have asked . . .

Sorry, I don't really know much when it comes to the technical aspect of videos and video production so bear with me when I forget stuff or just don't understand.

I'm not sure what you mean by full media properties, but I do use the Lagarith Lossless Codec for these videos (these are gameplay footage I record with DXTory using the codec), other properties are the same as the render setting I posted earlier.

I have simulate device aspect ratio on
scale to fit is on
I do not know where to find the source output matching thing

MediaInfo.
Google is your friend.

I'm sure others will have the time to help you through this step by step.
Best.

I've spent days googling this problem and have yet to find a solution

Have a look at this page http://mediaarea.net/en/MediaInfo/Download/Windows. Download MediaInfo, install and run it and then examine your source files, copying what what you see in the text output and pasting into the forum.

General
Complete name : D:\DxTory\mb_warband 2014-07-13 01-58-50-953.avi
Format : AVI
Format/Info : Audio Video Interleave
Format profile : OpenDML
File size : 19.9 GiB
Duration : 16mn 59s
Overall bit rate : 167 Mbps
Original source form/Distributed by : Video:Lagarith Lossless Codec Audio0:BenQ RL2455-4 (NVIDIA High Definition Audio) Audio1:Microphone (Yeti Stereo Microphone)
Writing application : DxtoryCore ver2.0.0.126

Video
ID : 0
Format : Lagarith
Codec ID : LAGS
Duration : 16mn 59s
Bit rate : 164 Mbps
Width : 1 280 pixels
Height : 720 pixels
Display aspect ratio : 16:9
Frame rate : 30.000 fps
Color space : YUV
Chroma subsampling : 4:2:2
Bit depth : 8 bits
Bits/(Pixel*Frame) : 5.940
Stream size : 19.5 GiB (98%)

Audio #1
ID : 1
Format : PCM
Format settings, Endianness : Little
Format settings, Sign : Signed
Codec ID : 1
Duration : 16mn 59s
Bit rate mode : Constant
Bit rate : 1 536 Kbps
Channel(s) : 2 channels
Sampling rate : 48.0 KHz
Bit depth : 16 bits
Stream size : 187 MiB (1%)
Alignment : Aligned on interleaves
Interleave, duration : 100 ms (3.00 video frames)

Audio #2
ID : 2
Format : PCM
Format settings, Endianness : Little
Format settings, Sign : Signed
Codec ID : 1
Duration : 16mn 59s
Bit rate mode : Constant
Bit rate : 1 536 Kbps
Channel(s) : 2 channels
Sampling rate : 48.0 KHz
Bit depth : 16 bits
Stream size : 187 MiB (1%)
Alignment : Aligned on interleaves
Interleave, duration : 100 ms (3.00 video frames)

167 Mbps yuv is not going to preview nice. It wasn't designed to.
You need to be searching for dxtory workflows that work.
The Vegas preview settings can be addressed later.

how would I know if something would work with vegas in terms of previews?

We have no idea what system codecs are (or could be) on your machine that are available to dxtory. The way you would know which ones work best for YOUR Vegas preview are to try them. If you get any lossless codec to work perfectly, you may consider yourself fortunate.

After you've settled on a playable codec:
There are many tips and tricks available to optimize your preview, and these are abundantly documented on these forums.
We have a nifty search feature and an extensive knowledgebase available to you to explain these things in intricate detail..

You can kill background processes.
You can turn GPU off.
You can reduce ram preview.
You must Match Media Settings.
You can turn scale to fit preview off.
You can turn simulate device aspect off.
You can turn change to match output off.
You can take all filters, effects, pan/crop/zoom off the timeline.

In the end, it will be your willingness to seek and try that will lead you to a solution, rather than seeking a one-size-fits-all solution on this forum.

"You need to be searching for dxtory workflows that work."
There are hundreds of thousands of Google hits and even video tutorials for "dxtory and sony vegas."
This is a peer support forum for Vegas. Unless someone here happens to have a lot of experience with your particular workflow, this is perhaps not the best place to seek detailed support for configuring third-party applications. What do they say on the dxtory support forums?

Best of luck.